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Global risk markets rallied Monday, with the exception of a certain newly issued social-networking stock, on thoughts new policies may be coming if needed to stave off a worsening of global stresses. Not needed measures either to get at the root cause of the crisis in Europe or to prevent a massive fiscal contraction next year in the U.S., but from more monetary expansion ease symptoms of distress.

Not that anything fundamental has changed. The Group of Eight issued a tepid non-statement over the weekend and no new news on the European debt crisis was comparatively good news. Yet talk remains of the inevitability of "Grexit" -- a Greek exit from the euro -- and the deepening strains on Spanish banks. European Union leaders are slated to chat over dinner Wednesday, although it's unlikely any initiatives will emerge from there.

The key deadline looming is Greece's elections June 17, which effectively is viewed as a referendum on whether to remain in the European Monetary Union. "It is reasonably clear to me that if Greece votes in a way that is interpreted as a 'yes' to EMU, they will be offered stimulative support from outside," writes Jim O'Neill, chairman of Goldman Sachs Asset Management. "Secondly, while there is obviously a significant risk of highly destabilizing contagion, I would strong expect major policy initiatives to provide a firewall (lots of liquidity from the European Central Bank, etc.)"

Longer run, O'Neill continues, the recent French election of socialist Francois Hollande and the subsequent policy response in Germany are more important than the Greek election for the single-currency zone. On the latter score, he notes the German finance minister's shift favoring higher wages and the Bundesbanks recognitions that inflation may rise temporarily above 2% as "positive developments."

In that regard, Germany's IG Metall union won a 4.3% wage increase over 13 months for 800,000 members in the state of Baden-Wuerttemberg, which could serve as a model for all of Germany's largest union. That would give workers a real increase, twice that of the rate of inflation. Moreover, it would work toward closing the gap between German labor costs and those of the less-productive economies of Southern Europe -- a necessary step to reducing imbalances when exchange-rates can't be adjusted.

Michael T. Darda, chief economist and market strategist of MKM Partners, also points out the ECB under its current president, Mario Draghi, has begun to reverse some of its previously excessively tight policies, undoing last year's interest-rate hikes and expanding the bank's balance sheet through the Long-Term Repurchase Operations.

But with euro-area money-supply growth far below trend and the Germans backing off from their insistence for tight money, "there is an opening for the Draghi-led ECB to move in an aggressive, open-ended way," he adds. That could include more LTRO loans to banks needing liquidity or outright buying of bonds that would effect quantitative easing and also put a cap on the cost of sovereign debt in order to prevent the spiraling of debt costs for heavily indebted governments such as Spain and Italy.

If the ECB can't or won't act, Darda adds, "the Fed may need to take further action to ward off the risk of a deflationary shock disrupting the U.S. business cycle." He sees a "passive tightening" of monetary policy, evidenced by the widening of credit spreads and signs of lower anticipated inflation in the market for Treasury Inflation Protected Securities. The Fed eased in 2010 and 2011 when the implied inflation rate in the TIPS market dropped below 1.75%, and would apt to do so again, especially if macro data weaken.

Similarly, MacroStrategy's David P. Goldman writes the probability of QE3 -- a third round of quantitative easing -- has increased, as indicated by the rise in the prices of TIPS late last week and the rebound in gold. Runs on European banks make the Fed more likely to act to stem spreading financial instability, he writes in a research note. That concern also is apparent in the continued slump in big bank stocks -- and not just JP Morgan -- while the rest of the market rallied Monday.

The markets' signals -- from stocks to TIPS to gold and especially the VIX -- imply they think the Fed and other central banks have their back. The question is how much worse things have to get before policymakers act.